One of my favorite quotes is from Yogi Berra: “Predictions
are difficult, especially about the future.” Most years I believe that applies.
I believe 2019 may be the exception. 2018 started strongly and continued until
the end of August, and then not only did the S&P 500 wipe out all the gains
but ended down 4.39%. In my opinion nothing characterized that what happened
more than December 24 and December 26. On December 24, the DOW Jones 30 plunged
653 points and the next trading day on December 26, the DOW charged upward
1,024 points. What changed in the 36 hours from December 24 to December 26?
Nothing.
Computer algorithms make about 60% of all trades these days.
Computers can read a 2 – to 3-page news release and execute trades in less than
one second – far faster than a human can even read the news release. Computers
are not only reading news releases but tweets, research reports, and technical
trading signals in the market. Computers are placing orders to buy or sell in
tenths of a cent. Of all the orders placed, fewer than 10% are actually
executed as the computers withdraw the majority as the stocks move. It has
become a different world with computer algorithms geared to buy and sell
millions of shares at fractions of a cent.
The net result was the fading market in 2018. That leads to
my outlook for 2019. Jack Ablin, a frequent Money Show speaker, wrote in this
book, Reading Minds and Markets:
“Most recent experience should not call into question why we invest in the
market, but rather it should serve as a lesson that investing is not easy.
Investing takes hard work, consistency, and objectivity.” However, 2019 seems
to be different.
Investing has been compared to the game of chess. There is
strategy and anticipation of how the market is moving. There are frequent
adjustments and decisions. That is a normal year. However, 2019 seems to be
different. Instead of a game of chess, it seems this year will be a game of
checkers.
Normal price earnings
rations run between 18 and 22. Look at the past few years:
Year end 2014 16.92
Year end 2015 16.10
Year end 2016 21.56
Year end 2017 21.77
Year end 2018 15.47
Either earnings have to dramatically fall by 30% or stocks
have to rise. It is a game of checkers.
Politically, 2019 will probably be a highly charged year.
But whether we build the wall or not will have little impact on the economy.
Whether we have no investigations happening in the House of Representatives or fifteen
will have little impact on the economy. Whether there are no indictments or
several dozen will have little impact on the economy. There will be a lot of news and controversy,
but very little will impact the economy. Immigration will impact is as there is
a shortage of qualified workers; but the impact will not be that great.
Barring a geopolitical event, 2019, in my
opinion, looks very positive.
